Online Savings And The FDIC

Who isn’t short of time, these days? Everyone is always too busy, which is why time savings like online banking are so popular. You save time, you save gas, you save waiting in line.

When you open up an Internet savings account or if you want to look for banks with free checking accounts online, you want to be sure that your money is as safe as it would be in a regular bank. In some cases, this is easy: many major banks that have been around for decades now offer internet banking, so you can access your account without ever leaving your computer. However, web-only banks, which have no physical presence but offer all (or most of) the normal services online, may (and often do) offer higher interest rates due to their lower costs. What do you need to know about using a web-only passbook savings account or second chance checking account?

When dealing with money, safety first! Find a bank that’s based in the United States, so that you have legal protection if anything goes wrong. (Plus, in these paranoid days, sending money to a bank that resides entirely outside the United States could raise suspicions of money laundering or donating to those engaged in nefarious activities). Second, make sure the bank is FDIC insured. The FDIC, or Federal Deposit Insurance Corporation, automatically insures each depositor for at least $250,000 per insured bank (up from the previous $100,000 limit). Banks pay a fee to be covered by the FDIC; in return, the government guarantees that if the bank folds, all depositors will get their money back (up to the $250k limit). Of course, this also means that if you have more than a quarter million dollars, you shouldn’t keep it all in one bank..but then, most of it should probably be in investments anyway!

Although it’s tempting to put as much money as possible into high-return investments in order to save for retirement, it’s always a good idea to have a little spare cash on hand in case of emergencies. When you don’t need to be able to access it immediately – say, the money past a week’s expenses – it’s a good idea to keep it in a safe spot where you can earn a reasonable interest rate. I (and Dave Ramsey) recommend saving up an emergency fund that can cover six month’s expenses (especially in an unstable job market like we currently have, where you can’t rely on staying employed); possibly the most best way to keep it available and yet earn the best return is to have a week’s worth of savings in an account you can get to immediately, a month’s worth in an online savings account paying a higher rate, and the rest in staggered CDs that come due once per month. In this way, you keep both high rates and maximum flexibility. Oh, and one last note – always go for the best benefits accounts, don’t get sucked in by savings or checking account promotions such as a 2nd chance checking just to get a little money back up front.